According to the theory of Microeconomics, a
shortage defines the quantity demanded exceeds the quantity supplied. If there
is a shortage, then the price will be below the equilibrium price. This illustrates that, a shortage can
continue anytime for example, when there is no price ceiling instituted by the
government. If the price ceiling is above the equilibrium, it has no effect on
the market. The figure below shows a typical shortage graph.
Based on the article, due to the short supply and
high demand of avocados, there is a shortage occurs in the market which means
the price for avocados increases. Since
avocados are a high value product, therefore; there is no expectation for a
cheaper price( Christopher,2013). This illustrates that, any price below the
equilibrium price, a shortage pushes the price to increase. When there is a shortage of avocados in the
market, the price will continue increasing until it reaches the equilibrium
point. The graph below shows the
shortage of avocados in New Zealand.
This shortage of avocados in the market shows that,
at the price of $2.49, quantity supplied of avocados is 3 million and quantity
demanded is 6 million where it leads to a shortage of 3 million. This shows that the market is out of
equilibrium where the current price is unsustainable and must be increased in
order to reach the equilibrium point. When there is shortage, the price of
avocados should be increases in order to reduce the demand from consumers in
buying the product. This will eliminate the shortage of avocados in the market.
In conclusion, shortage only occurs when there is a
high demand with a less supply where the marketers should try to supply more or
lessen the demand by increasing the price of the product.
Fruit
scarcity hits Kigali
Scarcity is an intensive condition
of human existence that exists because society has unlimited wants and needs,
but limited resources used for their satisfaction. It occurs when there are no enough resources
to produce everything that humans like and want.
According to the article, there is
a scarcity of fruits in Kigali where the problem exists because many of the
fruits come from Uganda, Burundi and Tanzania delays. Because
of the delays, the fruits are rotten by the time they arrive. The scarcity of
the fruits and the increase in market prices, which has impacted the supply and
demand chain because customers have decreased as prices shoot up (Peter, 2013).
Thus this situation requires a rational decision making which is based on the
cost and benefits of buying mangoes or tangerines. The graph below shows if
Kigali has a full economic efficiency.
The production possibility curve
(PPF) shows that at point C production can be achieved with 600 tangerines and
800 mangoes being produced while at point D production is achieved at 250
tangerines and 1000 mangoes. This productivity of point C and D on the PPF
curve explains that mangoes and tangerines explain that it is fully and
efficiently utilized.
In
conclusion, Scarcity for fruits is difficult to overcome as humans have their
wants and various desires that have to be made between alternatives. The
scarcity for fruits in Kigali can be overcome if they plant their own crop for
the use of the country.
Study
highlights food price elasticity
The price elasticity of
demand indicates how responsive quantity demanded is to a change in the price
of the product which includes elastic, inelastic, unitary, perfectly elastic
and perfectly inelastic.
The study on the article shows
that milk, bread, fresh fruit and vegetables face an inelastic demand which
means consumers are more likely to absorb a price increase to continue
purchasing these products that can’t be switched with any other. All meat
types, rice, margarine and preserved vegetables had elastic demand which means
they are not willing to pay for an increase in price due to various
alternatives and choices (Stock and land, 2013).The figure below shows the
demand elasticity for foods.
For those elastic demands like
vegetables and fruits, consumers can substitute it with supplements or
smoothies to make it easier in gaining the same nutrition.
Furthermore for that inelastic demand, consumers are not able to substitute
with another good for instance, even the price of sugar is increased, consumer
will not have a choice but to buy it is a compulsory good in daily life.
In conclusion, the price
elasticity of demand on foods such as vegetables and fruits can’t be changed
from the elasticity category that they belong. If there is a substitute for
such food, then consumers will not have to force themselves in consuming it.
Competition
in fresh produce markets
Perfect competition is a market
structure with a characteristic of large number of firms, homogenous goods
sold, freedom to entry and exit the market and perfect knowledge of price and
technology.
Based on the article, it is
stated that the United States department of agriculture (USDA) shows a study that
is concern on the wave of mergers among the grocery retailers may reduce the
competition with the retail industries( Timothy&Paul, 2003).It shows that
the perfect competitive market does not have a high competition of price in the
market. This show the retailers follows all the characteristic of a perfect
competition where retailers are well known about the price they pay for the fresh
apple, table grape, fresh California orange, and Florida grapefruit before
setting a price to consumers. This also shows that these marketers are price
taker as they are not able to influence the price but only take the equilibrium
market price. Furthermore, there
are agreements done using statistical model of fresh fruit pricing which some
way makes them to agree them to not undercut firms in product markets. This
enables them to continue or exit the market whenever they like without any restriction.
The graph shows the profit maximizing point.
For instance, based on the
graph at the point where MR is greater than MC shows that there is an
increasing economic profit as the output increases. This point is where the
fruits are sold with profit at the 8th quantity. At the intersecting
point of MR and MC shows that the profit maximizing point is at 10 quantities
where fruits are sold at maximum level. When there is a loss at point where MR
is lesser than MC, the economic profit decreases if output increase. This point
shows when the fruits are not being sold due to spoilt or rotten.
In
the short run, a competitive firm supply curve shows a profit maximizing output
as the market price changes. This illustrates that, the changes of price in the
fruit firms will cause the firm to obtain a maximized profit where the MC intersects
MR and the price below the shutdown point is where the firm produces nothing
where there is no temporary shutdown but to exit the market.
In the long run, the
fruit firms exit the market as long they incur an economic loss. The price of
fruit will continue to increase until the forms make zero economic profit. The
graph above illustrates that the firm will shut down only after reaching the
intersection of MC and ATC.
In conclusion, the
fruits firm will continue in the market by depending on the profit that is made
in the short run and long run.
References:
1.Christopher Adams (2013) Short supply, high
demand sees avocado prices soar [Online]. New Zealand: The New Zealand
Herald. Retrieved from: http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10866614
[Accessed 3rd June 2013].
2.Study highlights food price
'elasticity' [Online]. Melbourne, Australia: Stock
and Land. Retrieved from: http://www.stockandland.com.au/news/agriculture/agribusiness/general-news/study-highlights-food-price-elasticity/2333446.aspx
[Accessed 7th June 2013].
3.Peter (2013) Fruit scarcity hits Kigali
[Online]. Rwanda: Itezimbere. Retrieved from: http://www.itezimbere.com/2013/04/fruit-scarcity-hits-kigali/
[Accessed 9th June 2013].
4.Timothy&Paul (2003) Competition in fresh
produce markets [Online]. United States: Electronic Report from the
Economic Research Service. Retrieved from: http://agecon.ucdavis.edu/people/faculty/roberta-cook/docs/Articles/PattersonRichERS03.pdf
[Accessed 9th June 2013].
5. Not Big on Fresh Fruits? Try These 3
Substitutes [Online]. Malaysia: Fitday. Retrieved from: http://www.fitday.com/fitness-articles/nutrition/healthy-eating/not-big-on-fresh-fruits-try-these-3-substitutes.html
[Accessed 8th June 2013].
